2008 Spring—Oral Training for Sophomores
Jo Ho

The Free Market: A False Idol After All?

Steve報告

For more than a quarter-century, the dominant idea guiding economic policy in the United States and much of the globe has been that the market is unfailingly wise. So wise that the proper role for the government is to stay away and not touch the gusher of wealth that will flow, trickling down to every level of society, if only the market is left to do its magic.

That notion had carried the day as industries have been unshackled from regulation, and as taxes have been rolled back, along with the oversight powers of government. Faith in the market has held sway as insurance companies have fended of more calls for more government-financed health care, and as banks have engineered webs of finance that have turned houses from mere abodes into assets like dot-com stocks.

But lately, a striking unease with market forces has entered the conversation. The world confronts problems of staggering complexity and consequence, from a shortage of credit following the mortgage crisis, to the threat of global warming. Regulation is suddenly being demanded from unexpected places. The bush administration and the Federal Reserve have in recent weeks put aside laissez-faire rhetoric to wade into real estate, wielding new rules and deals they say are necessary to protect Americans from predatory bankers – the same bankers who, only a year ago, were being lauded for creativity. Were the market left to its own devices, millions of Americans could lose their homes, the administration now says.

Central banks on both sides of Atlantic are coordinating campaigns to flush cash through the global economy, lest frightened lenders hoard capital and suffocate growth. Adam Smith used the metaphor of the invisible hand to describe how markets should function: With everyone at liberty to pursue self-interest, the market omnisciently distributes goods and capital to maximize the benefits for all. Since the Reagan administration, that idea has weighed in as a veritable holy commandment, with the economist Milton Fried man cast as Moses.

As the cold weather ended and Communism retreated, the invisible hand seemed to monopolize economic thinking. Even China, controlled by a nominally Communist party, has blessed private entrepreneurs and foreign investment. In Latin America, the international Monetary Fund financed governments that embraced market forces while shunning those that were resistant. But now the invisible hand is being asked to account for what it has wrought. After two decades of disappointing economic growth, several Latin American countries have spurned the I.M.F while embracing the finance and thinking if Venezuela's avowedly Socialist leader, Hugo Chavez. China's leaders, though still devoted to 「reform and opening,」 are keeping tight control on the value of the currency while steering capital to powerful state-owned companies, concerned that free markets could throw millions of peasants out of work.

Throughout history, regulation has gained favor on the heels of free enterprise run amok. Now, the subprime fiasco and a wave of home foreclosures are prompting many to call for new rules.

「We're revisiting the question of market flows with deservedly wary eye,」 said Jared Bernstein, senior economist at the liberal Economic Policy Institute in Washington. 「For decades, economists and political elites have argued that any time you regulate any aspect of economy, you're slipping the handcuffs on the invisible hand. That's demonstrably wrong in a lot of ways.」

But if markets can inflict pain, the harm from trying to tame them is even worse, argue those who would let the invisible hand carry on. 「Every regulation reduces people's freedom,」 said David R. Henderson, a libertarian economist at Stanford University's Hoover Institution. 「The more regulation we get, the worse we do.」

Mr. Henderson is critical of Bush Administration's effort to freeze mortgage rates, and the new rules proposed by the Fed intended to curb nefarious lending. They undermine the sanctity of contracts, he said, while making mortgages harder to gain for everyone.

「The way they just justify is that you've got to protect the stupid people who can't read a contract,」 Mr. Henderson said. 「But they're treating everyone as stupid.」

But in Washington, and under the roofs of many homes now worth less than a year ago, there appears to be a shift in the attitude about regulation because when things go wrong, demands grow for the government to make them right.

「Untethered market forces lead to bad things,」 said Mr. Bernstein of the Economic Policy Institute. 「You simply can't run an economy as complicated as ours on ideology alone.」